Tech-Savvy Fraudsters Put Landlords on Defense

Joel Rodstein has stacked 20 years in property management on top of the business degree he earned from the University of California-Santa Cruz. He’s worked his way up to become CEO of North Oak Property Management. Rodstein oversees a portfolio of 185 buildings ranging from commercial to multifamily properties including around 800 units spread over historic Hollywood and hip NoHo Arts District.

These days, Rodstein spends a good chunk of time every week handling the sort of paperwork that seems more in line with an administrative assistant’s duties.

“I spend two to three hours a week just reviewing paperwork like this,” said Rodstein, referring to a seemingly innocuous rental application.

Indeed, the necessary evil of paperwork that was once considered the stuff of secretaries now holds the potential to be just plain evil — rife with levels of risk that put it on the to-do lists of landlords and property managers.

Fraudulent applications have become an increasingly common form of theft that starts when a tenant who generally lacks the means or intention of paying rent gets into a lease and then uses eviction protections to take a free ride that can last for months.

Beside the lost rent for however many months a bad tenant can game the system, landlords eventually bear the legal and administrative costs of an eviction, which averages $7,685, according to a survey by Snappt, an Ojai-based provider of fraud-prevention software.

Rodstein has plenty of company in finding new ways to avoid the toll of fraud. Advances in technology have made fake documents harder to detect and the problem more widespread. That’s created an arms race of sorts, with service providers peddling software to uncover would-be cheats.

“Leasing fraud today has become far more sophisticated and brazen, using stolen or composite identities advertised for sale on social media — and often with no intent to ever pay rent,” said Jay Parsons, who runs an eponymous consultancy that specializes in rental housing economics.

That brings in another, structural cost for landlords and property managers looking to stay ahead of the game.

Rodstein and North Oak Property Management now pay about $10 per applicant for fraud detection technology, forking over about $18,000 a year to service providers.

For developer and apartment building owner Balanciano Group, the measures cost around $25 per tenant application.

“As fraud became more sophisticated, we implemented better tools, smarter systems and stronger safeguards,” said Shawn Evenhaim, CEO of the Los Angeles-based Balanciano.

Sky Properties in Toluca Lake, has implemented a series of safeguards that includes tying credit reports to bank statements, reviewing utility bills, verifying employment directly, and running artificial intelligence-based ID verification.

All of that creates another layer of cost — because time is money and those steps take more time, according to Kari Negri, CEO of Sky Properties. A process that used to require one day now takes three, which means units sit vacant longer.

With a monthly rent of $3,500 that amounts to a $117 rental loss per day per unit.

The challenges of tenant-application fraud are clear and growing, according to landlords, property managers, security specialists, law enforcement and industry data.

Nationally, over 90 percent of rental housing operators dealt with some form of fraud in a 12-month period, a survey released by the National Multifamily Housing Council in January 2024 indicates.

Of $4.2 million in bad debt that the average rental housing provider saw that year, a quarter could be attributed to fraudulent applications and the related failure to pay rent, per the association.

Fraud runs the gamut from old-school tactics such as providing phony references to new digital tricks like creating fake pay stubs.

It’s the digital end that seems to have come out of a perfect storm that tracks back to the pandemic era. That’s when virtual leasing processes reduced face-to-face interaction, financial hardship increased incentives to cheat, and technology made document fabrication easier than ever.

Rodstein recalls one incident when he couldn’t evict a scammer due to tenant protections during Covid. Once those were lifted, North Oak served the man with a three-day notice, and he left in the middle of the night.

Criminal networks are in the game, and will establish shell companies with legitimate registrations, websites and payroll systems that generate authentic-looking, but fraudulent pay stubs and bank statements, according to Daniel Berlind, founder of Snappt.

That level of sophistication requires looking at how long ago the business was created, and what its website has been like over the years.

“It’s really about kind of creating this web and linking all of these data points together,” Berlind said, like ID, documents, bank accounts and payroll.

Small landlords are particularly vulnerable, according to Dan Yukelson, executive director of the Apartment Association of Greater Los Angeles.

“The smaller owners are more likely to want to give a break to someone who seems nice and they do not follow strict screening criteria, and most importantly, do not have a way to get access to document fraud detection software,” he said.

Some of the biggest institutional landlords are on alert, too.

Charleston, South Carolina-based Greystar, which manages over $300 billion in real estate globally, reported that 12 to 15 percent of tenant applications are fraudulent.

The firm bears the costs of multiple applications to detect fraud, said Jamie Teabo, senior managing director of real estate. Greystar is fending off fraud for the most part, Teabo said, who notes the virulence of the trend.

“The percentages we report reflect only provable fraud,” she said, “meaning confirmed cases identified through our verification processes, and do not include applicants who abandon the leasing process for fraud-related or other reasons.”

Landlords big and small will have to pay the freight on fraud prevention for the foreseeable future, according to Caren Maio, CEO of multifamily fraud prevention platform 100.

“It’s the Wild West,” Maio said. “Making, selling and using fake IDs is illegal, but many counterfeiters operate overseas and accept cryptocurrency or gift cards to evade U.S. law enforcement.”

At the state level, a number of housing experts said there is no point in filing a complaint.

“There’s no way any police agency in the state of California will go after a tenant, be it for even giving a counterfeit cashier’s check, which is a federal crime,” said attorney Dennis Block, who specializes in representing landlords on evictions. “They won’t go after that. They won’t go after tremendous damage to the property, which is vandalism, which is a felony in the state of California. They won’t do — nothing.”

The Federal Bureau of Investigation reviews complaints on a national level, but prosecutions are rare, especially when the schemes have international ties, an agency spokesperson said.

“The lost funds can’t be recovered, and an arrest can’t be made but we do urge reporting,” she said.

The barrier of entry for fraudsters remains low as the feds take a passive approach to the problem.

Identity fraud can start at as little as $4 for a Social Security number on the dark web, and go up to $5,000 for a physical passport, according to an investigation by Atlas VPN based on Flashpoint Intelligence research findings between 2017 and 2019 cited by Forbes.

Meanwhile, the bad guys are moving on to the next big thing.“It used to be just folks doing this at their own home,” said Berlind of Snappt. “And now it’s crime rings that are literally creating these entire fraudulent packages for folks … and, obviously, AI is certainly helping advance their missions.”